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Betting your bottom dollar on a better tomorrow

Jul 28

Posted by Jeff in Economy | 12 Comments

Cyril Northcote Parkinson’s Law from back in 1955 states that work expands to fill the time available and nowhere has this Law been more noticeable than in the US these past few weeks and months. The lawmakers have known for some time that their debt ceiling of a dizzying £14.3trn would have to increase to ensure default is avoided on August 2nd (rumoured to be closer to August 10th in some quarters) but, here we are, days to go and Republicans aren’t returning the President’s phone calls, Democrats are squeezing in last minute amendments and there’s £350bn gaps being found in the proposed solutions. The hard work clearly didn’t get done soon enough and Parkinson’s 56 year old dictum strikes again.

So the great American dream is something of a nightmare right now but how can you enforce tax increases on a flabby country that largely aspires to be rich in the future and is a few falafel sandwiches short of a Socialist picnic? The creaking structures of a nation long past its best are coming apart and the refrain that no entity is too big to fail may well be getting put to the ultimate test sooner rather than later. My personal preference is that economic disaster can be stalled long enough, while looming real enough, for a democratic and political consensus to come through at the ballot box agreeing to tax the rich, fix social welfare, move away from oil and lead towards a more sustainable future under the stewardship of Barack Obama, all the while maintaining the broadly beneficial global might that the US of A has historically enjoyed (giant foam fingers optional).

The irony is, this could have been Europe’s moment right here to supplant the US as a leading superpower if it didn’t have its own problems going on right now with Greece, Italy, Ireland, Spain, Portugal etc falling like dominoes. We Scots are regularly told that we are stronger together and weaker apart but that European strength does not seem to be in abundance right now and nor does there seem to be the enthusiasm from our current member state to drive that strength in numbers and economies of scale forwards. This is a shame. Greater European integration brings progress quicker for greater numbers and for all that the Euro is facing touch problems right now, Britain would still be better off inside it than out. Growth figures of 0.2% and an exchange rate that is weaker against the troubled Euro today than it was a year ago do not give much confidence in the shaky, stuttering Sterling. Yes, having one’s own currency provides a necessary agility when times are tough and what Ireland and Greece would give to go back to punts and drachmas we all know, but refusing to trade with most of the rest of the Continent in their shared currency because you like the Queen on your coins and notes is an odd decision. We shall remain the Continent’s distant cousin while we remain so pointedly on the outside, at our choosing.

The most worrying aspect of the European and American troubles and the impact on the UK are the yo-yoing share prices, primarily in the banking sector. Someone, somewhere is creaming large profits from these share prices by selling at the peaks and buying at the troughs and you can be sure that it isn’t Mr and Mrs MacShoogle down the road that are making these gains. There are investment banks and equity houses that are straddling the globe right now, unable to believe their luck at the prolonged bout of opportunities for speculation and arbitration that a fluctuating stock market provides.

What does it all mean? For me, it all means that inheritance tax has to increase drastically. I’m talking punitive levels that ensure that individuals make their own luck in this world, as it should be. The current capitalist system is unlikely to change but there exists a structural imbalance that rules that, if you are born into the right family or get into the right fast-track career stream at JP Morgan, you will enjoy a life of luxury that will make your eyes pop and that wealth will stay with you, stay with your children and stay with your children’s children and beyond unless a colossal error is made somewhere down the lineage. It’s a rot that has set in America, a rot that has set in the UK and is creeping all over the new world as wealth spreads across an elite few.

Global economics is all about supply and demand and if the supply is being hoarded by the few, is compounded by taking advantage of disarray for the many and the demand is squeezed by food shortages, energy uncertainty and the need to print more money, something is not right. Inheritance tax is one of the largest levers available to flatten out the inequality that we see grow each day before our very eyes and in all corners of the world and, regardless of whether the US defaults or not over the next week or so, that lever needs to be pulled.

Or we can stick with Parkinson’s Law and put the problem off for another day, week, month, year,…..

Wanted: more burdz for business

Jul 9

Posted by The Burd in Economy, Europe, Society | 22 Comments

From recent events, you might think my timing is awry.  But we need more women in business.

Because more women means fewer Rebekah Brooks.

This week, the European Parliament voted in support of quotas for women in business and if voluntary measures do not work, for EU legislation to be used.

Currently, women make up 10% of directors and only 3% of CEOs at the largest listed EU companies.  Progress is painfully slow, only half a percent per year.  At this rate, the European Parliament predicted that it would take another fifty years for women to have at least 40% of seats in the biggest boardrooms.

Scotland is no better.  A recent survey for the Herald found that there are only 29 female directors in the 30 largest listed companies in Scotland.  Ten have no women directors at all, including major companies like A G Barr (Irn Bru manufacturers), Robert Wiseman dairies, Aggreko, Scottish Investment Trust and the Wood Group.

It is truly depressing stuff, but not nearly as depressing as the views of women who have made it to the top.   Progress has been made in recent years, you need to look at other sectors too, there are more women there in equivalent positions, merit must always come first, and the hoariest chestnut of them all.  That old faithful – women are too busy juggling careers, children and partners (!) to find time for extras like non-executive positions.

But let’s not rehearse the old arguments – and invite the usual comments – of equality and opportunity.  Except briefly to allow the EU Vice President  Rodi Kratsa-Tsagaropoulou, (Christian Democrat MEP from Greece) whose resolution on the report on Women and Business Leadership was adopted by the European Parliament, to comment:

“Europe cannot afford to leave talent untapped! Empowering the role of women on management boards of companies is not only about ethics and equality, it is also essential for economic growth and a competitive internal market. With the adoption of the report on Women and Business Leadership, the European Parliament has sent a strong message to governments, social partners and enterprises in Europe”.

The resolution urges the European Commission to “propose legislation including quotas by 2012 for increasing female representation in corporate management bodies of enterprises to 30% by 2015 and to 40% by 2020”, if voluntary measures do not manage to increase the proportion of women.  The report and debate pointed to the success of similar quota legislation in Norway and welcomed the threshholds already set in France, the Netherlands and Spain.

In the UK too, there have been moves to increase women’s representation in leadership roles voluntarily, through the establishment of the 30% club and in Scotland, the current and soon-to-be chairs of CBI Scotland are women.  Indeed,  the new CBI chief, Nosheena Mobarik OBE, has already called for women to be given more senior roles in Scottish boardrooms.

It’s all good but it’s not enough.  So let’s encourage business to meet these potential quotas voluntarily by focusing on the only arguments that matter to them, the ones that affect the bottom line.

Studies have shown that companies with a higher percentage of women tend to perform better commercially and financially.  Women have just as many skills and as much experience to offer as men.  Indeed, their different experiences and perspectives could help create a much needed cultural shift in the way in which business is approached and conducted.  And there is evidence – cited by David Watt, Director of the Institute of Directors in Scotland – that shows that companies with a diverse and gender balanced boardroom make better progress and have better returns than all-male boards.

So more women directors and in senior leadership positions, more moolah.  For us all.  And if that doesn’t appeal, then I don’t know what might.

Oh this.  More women, fewer Rebekah Brooks.  Because we’ll get more women of better quality, whose morals and ethics are more sound, and with a shift in culture, there will simply be no room for the likes of Brooks who got to the top by playing men at their own game.

 

 

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Nick Clegg’s Idiotic Share Giveaway Plan

Jun 23

Posted by Jeff in Economy | 14 Comments

Before the 2010 election, one of the tartan goodies that the Lib Dems, and Nick Clegg in particular, waved in front of the Scottish electorate was the promise of splitting Lloyds Banking Group to ensure that HBOS was returned to Scotland. It was an impossible dream, regardless of whether Clegg knew it at the time or not. You don’t sew two banks together for two years only to pull them apart on a political whim.

Fresh from that misguided move, Nick Clegg has today offered to hand out banking shares to the public as if they were little goody bags to be tossed around like confetti.

In promising free shares for all, Nick Clegg is trying to rinse one last poll boost from the drying cloth of anti-bank sentiment in the UK right now. He might as well be proclaiming that the Lib Dems are against ID cards, against the Iraq War and in favour of AV for all the timeliness good it will do him.

It is understood that the banks messed up but constantly bashing them for no other purpose than it feeling good is of no use to anyone, and the public saw through that a long time ago. After all, if giving away shares to the public was a good idea then a Government would have bought up parts of Shell, BT Group and Barclays in the past and arranged a massive mail shot. It didn’t do so because it would be a crass move and completely counter-productive to the British economy.

In many ways, George Osborne is adopting the same strategy for the Government as banks are, focussing on core services/customers and washing his hands of costly non-core services/customers as quick as he can because money and resources are tight. Agree with him or not, (and I disagree with him, people need the Government’s largesse as much as customers need banks to continue lending to them) but there is a plan in place that the coalition needs to stick to and Nick Clegg, for wishful partisan gain, is working diametrically opposite to this.

George Osborne needs the RBS and Lloyds share prices to reach a certain level whereby the Government can make a profit from its investment and then either pay down the deficit or reduce the rate at which spending is being cut. What the Chancellor doesn’t need is the Deputy Prime Minister landing a mischief-making, ‘muscular liberalism’ headline on the front page of the FT and promising everyone shares, candy floss and a pony each which results in the Lloyds share price dropping 3.68% at the close of business to a new 52-week low.

The Lib Dems got battered in the Council elections, they got battered in by-elections and they got battered in the Holyrood elections. The quickest route to total oblivion for Nick Clegg’s party is to fatally undermine what the Conservatives are trying to do in Government while pretending to be mature partners.

Nick Clegg took a large, silly leap forwards towards that oblivion today by cravenly suggesting free money for all.

The Lib Dems can work against the Government from the Opposition benches or they can work as a team alongside Cameron and Osborne, but they can’t do both at once.

The so-called Eurocrisis: separating myth from reality

Jun 15

Posted by Guest Blog in Economy, Europe | 17 Comments

On our travels in Strasbourg we invited Scottish MEPs to guest post for Better Nation on the topic of their choice. First to take up our offer is Labour’s David Martin MEP, former Vice President of the European Parliament itself.  David can be found elsewhere on Twitter, Facebook and his own blog.

To read the British media or to listen to many British politicians, you would think that the euro as such was in crisis and about to fall apart. This is sometimes accompanied by a smug smile about how wise we supposedly were not to have implemented Labour’s policy to join the euro. A little more factual analysis would be welcome.

For a start, the euro as a whole is not in deep crisis. It has strengthened in value on international monetary markets (while the pound has plummeted); it has throughout its existence maintained a low and stable inflation rate; the balance of payments of the Eurozone is in broad equilibrium; and the euro is beginning to gain the advantage of being held across the world as an alternative reserve currency to the dollar. Economic growth has returned to the Eurozone as a whole (and especially in countries like Germany and France of comparable economic magnitudes to Britain, where growth is still stagnating).

Yes, some Eurozone countries have hit problems of excessive debt – just as have a number of countries outside of the Eurozone (such as Iceland, Hungary, Romania, Japan and potentially the USA). Various countries have received loans and this includes three Eurozone countries (do the press ever mention any others?). These three countries amount to a total of 6% of the Eurozone economy.

The loans are not actually “bailouts”. They are not grants or gifts. Nor has there been any assumption of liability for their debts. So it is wrong to say that taxpayers from other countries are having to fork out: the loans even attract interest so, unless there is a default, the lending countries will gain financially.

In fact, we would do well to stand back and look at the wider picture.  After all, Europe was hit three years ago by the biggest economic tsunami since the Great Depression. Yet we avoided most of the mistakes that we made in the 1930s:

  • We avoided protectionism — in no small part thanks to the single European market.
  • We largely avoided competitive currency devaluations — in no small part thanks to the euro (just imagine for one moment what would have happened if we had still had the French franc, the Spanish peseta, the Italian lira, the German mark, the Belgian franc and so on: there would have been in turmoil on the international currency markets in addition to the turmoil we already had).
  • We agreed on a fiscal stimulus at the depth of the recession (with an exit strategy) which helped turn the corner – in no small part thanks to Gordon Brown, lest we forget.

As a result, we have avoided the total meltdown that was a real possibility at one point and – except in a few countries, returned within two years to economic growth.

Nonetheless, three problems have arisen.

First, some countries have excessive levels of public debt. They had been profligate in the good times, meaning that they no longer had a margin of manoeuvre for the bad times. Greece is the most blatant case, compounded by fiscal fraud committed by the previous Conservative government there, and now in a very difficult situation.

Second, some smaller countries with large banking sectors suffered immensely when those banking sectors collapsed. Ireland (inside the euro) and Iceland (outside the euro) were the most blatant cases.

Third, some governments are taking deficits as an excuse for an all out assault on the welfare state, dismantling spending programmes with glee. I will leave it to the reader to guess which are the most blatant cases.

None of those three problems are a direct result of the EU policies or euro zone membership. They are a result of national policies and decisions. Nonetheless, they have underlined how interdependent we all are, in the Eurozone, of course, but also beyond, because of the single European market. A default by Greek or Irish banks would have major economic consequences in other EU countries, whether inside the euro or not. Britain, with its large financial sector, is particularly vulnerable and its maintenance of a separate currency is no protection.

That is why the countries of Europe have decided that it is worth coordinating and conferring more than before on their national macroeconomic policies. Strengthened macroeconomic coordination is a necessity. We now know that a housing bubble in Ireland or a banking problem in Germany can very rapidly become everybody’s problem. We have also learned that it is no good to focus just on deficits, but we need to look also at overall debt levels and other macroeconomic imbalances, such as asset bubbles and trade balances.

Indeed, looking at countries’ long-term competitiveness situations, led Germany to propose a “Competitiveness Pact”, on top of the extra co-ordination already agreed . It was, in its initial form, biased towards retrenchment and reductions in wages that made it unacceptable to a large majority of other Member States. It was replaced by a “Euro-plus Pact” put forward by the President of the European Council, Herman Van Rompuy. This was accepted by all but four EU Member States: UK, Hungary, the Czech Republic and Sweden — all currently governed by Conservative parties. All Member States currently governed by socialists signed up for this new version.

This was not because it is a socialist program – that would scarcely be realistic when there is currently an overwhelming majority of centre-right governments. But it is now focused on issues which all governments have to address: how in the long run to make our pension systems sustainable with ageing populations, how to arrange our tax systems in a way that does not mean that countries undermines their neighbours, how to combine fairness and flexibility in the labour market?

There remains much room for political debate on this. The left-right divide in the European Parliament has been accentuated – quite rightly as these are choices between policies, not choices between countries. But there is certainly a greater recognition that the key to the future, as we exit the immediate crisis, is how to improve the medium and long term performance of the European economy. This involves tackling structural problems. We must therefore focus relentlessly on the Europe 2020 strategy with its targets to improve education outputs, investment levels in R&D, poverty reduction, and climate change mitigation. The focus on immediate problems has detracted from the Europe 2020 strategy and we must rectify that balance.

And as to deficits, these are coming down. With immense problems in Greece, Portugal, and Ireland (where there is little choice) and the UK (where there is), but more gradually in most Member States.

The argument is about how this should be done – which is a matter for national decision not for the European institutions. It is up to each country to decide whether to cut expenditure or raise taxes. If cutting expenditure, what to cut, and if raising taxes, what to tax. Those are political battles to be fought at national level.

But in the long run, deficits must be reduced. From a socialist perspective, there is no point in accumulating public debt so that ultimately a higher and higher proportion of public spending goes on servicing the debt (paying a class of rentiers) instead of on public services or public investment. Of course, we must reserve the right to have deliberate counter cyclical deficits at times of economic downturn. But one of the lessons of the crisis is that this will be all the more effective if we have not already built up large debt levels. Keynes always intended “Keynesian” policies to be symmetrical, with deficits in the bad times balanced by surpluses in the good times. Britain didn’t do badly in this respect, thanks to Gordon Brown’s marriage to “prudence” (with Britain’s overall debt levels lower than Germany’s), but as we come out of the crisis we must learn that lesson across the whole of Europe.

The greatest lesson of all, however, is that whether we like it or not, we are all interdependent. Britain’s maintenance of a separate currency does not make it immune. Our trading patterns, our participation in the single European market, the cross-ownership of our banks with those in other EU countries (and the loans and liabilities they have), our involvement in the EU decision-making procedures and our simple geographic location, all mean that any pretence that it has nothing to do with us is futile.

Power to the people

Jun 8

Posted by Jeff in Economy | 19 Comments

Iberdrola, the owners of Scottish Power, is not a company that is struggling.

2010 profits – €4bn
2009 profits – €2.8bn
2008 profits – €2.5bn

Nonetheless, the power giant’s subsidiary Scottish Power has decided to raise electricity prices by 19%. (Note that Scottish Power is a prime contributor to those profits, making £1.2bn last year)

It is a desperately depressing move from yet another company that is clearly putting shareholder value, dividends and bonuses ahead of a fair deal for consumers. I actually used to assist in the external audit for Scottish Power and I can recall the despair from the Glasgow workers at the new aggressive culture that the Spanish owners were sweeping through. I wonder how this news will go down with the employee faithful.

It is surely time for some sort of super-tax on any super-profits that a company generates. The super-rich UK citizens are taxed 50% for income over, I think, £150k. Why don’t we have this same slicing of income for companies that are simply making too much money? George Osborne is reducing Corporation Tax to make the UK more competitive. I disagree with that argument but can at least grudgingly accept it. Nonetheless, the Chancellor’s philosophy will not be compromised by a new tax rule stating that profits over £1bn will attract an extra 10%. That could mean as much as £100m of tax from power companies to fight fuel poverty or force them to keep power bills reasonably low. If the power companies won’t give us a fair deal then perhaps the Government can assist?

We’re entering tough times and, easy Tory-bashing to one side, we are as a country going to have to find a way to tighten our belts for the next few years but surely there must be a way to ensure that simple necessities like power, food and housing can be safeguarded most of all?

Corporate greed and relentless growth irrespective of the social and human cost must be stopped in its tracks. In the meantime, may I heartily recommend Scottish & Southern Energy.